The Tanzanian shilling has depreciated against the Ugandan and Kenyan currencies despite increased exports, predominantly transacted in US dollars. This has created a higher demand for the dollar, adversely affecting the local currency’s value. Conversely, the shilling gained against the Rwandan and Burundian francs. Notably, Tanzania has become Uganda’s leading import source, indicating a shift in trade dynamics in the region.
In recent months, the Tanzanian shilling has fallen against the Ugandan and Kenyan currencies despite an increase in exports to both neighboring countries. Data indicates that transactions for these exports are typically conducted in US dollars, resulting in heightened demand for the dollar and subsequently weakening the local currency. In contrast, the Tanzanian shilling has appreciated against the Burundian and Rwandan currencies, benefiting from more favorable exchange dynamics in these regions.
Financial analysts attribute the decline of the Tanzanian shilling to the currency’s dependence on foreign currency transactions, primarily the US dollar. “This creates huge demand for the dollar compared to the Tanzanian shilling. It means that although we export a lot, exporters demand to be paid in dollars thereby creating high demand for the vehicle currency at the expense of the local one,” stated financial analyst Bernard Mumwi.
Bank of Tanzania Governor Emmanuel Tutuba noted that local currency transactions bolster the Tanzanian shilling’s value. However, when significant volumes of goods are purchased using US dollars by buyers from Uganda and Kenya, it negatively impacts the shilling’s status. An analysis reveals that between January 2021 and October 2024, the average exchange rate saw a 0.7% decline from Tsh20.906 to Tsh21.046 against the Kenyan shilling and an 18% drop against the Ugandan shilling.
Despite this, the Tanzanian currency strengthened against the Burundian and Rwandan francs during the same period. Data shows that one Tanzanian shilling appreciated by 58% against the Burundian franc and by 13.3% against the Rwandan franc, suggesting a favorable trade relationship with these nations.
As Uganda’s reliance on Tanzanian imports grows, Tanzania has surpassed Kenya as Uganda’s primary source of imports, with data showing over half of Uganda’s imports from Africa originating from Tanzania. This shift signifies changes in intraregional trade dynamics. Recent data from the Bank of Uganda indicates that in the year ending June 2024, Uganda imported goods worth $4.17 billion from African countries, with $1.77 billion sourced from Tanzania alone, marking a significant increase from previous years.
The Tanzanian shilling’s depreciation against the Ugandan and Kenyan currencies poses significant implications for regional trade dynamics within East Africa. Despite rising export figures to these neighboring countries, transactional reliance on the US dollar has overshadowed local currency stability. Trade relationships, particularly with Uganda, are evolving, as Tanzania emerges as a primary import source, thereby shifting traditional trading patterns.
The decline of the Tanzanian shilling highlights the challenges faced due to significant reliance on US dollar transactions for exports to Uganda and Kenya. This dependence leads to increased demand for dollars, which adversely affects local currency value. As Tanzania’s import relationship with Uganda strengthens, the evolving trade dynamics signify potential shifts in regional economic relationships within East Africa.
Original Source: www.thecitizen.co.tz
